Financial Markets Do Not Understanding Politics & Visa-Versa
Friday’s US employment report gave us one of the most watched, most revised and most misunderstood data figures in the world.
The US NFPs (non-farm payrolls) data have the highest global weighting of all indexes that matter and that on many occasions impact markets in spite of their lack of clarity and precision.
The data continued to show what it has been showing for some time; a labor market that is tightening, at least for skilled and semi-skilled workers.
The bigger challenge in several sectors of the economy is not the struggle to find work, but the struggle to find people to fill the huge number of job vacancies.
As the Fed’s “Beige Book” notes this situation is leading to selective increases in wage pressures while full-time employment wages are growing at a good pace.
All this raises the question what this means for the US Fed.
Central Bankers and economists know that data are imprecise, and that they are increasingly becoming imprecise.
They also know that economic modeling is imprecise and it has always been imprecise, and economists more than Central Bankers deal in trends.
As it is now, the trend in the United States is in a state of rising employment and of rising inflation pressure.
Dallas Fed President Robert Kaplan said: “I believe that excessive accommodation carries a cost in terms of distortions and imbalances in hiring, asset allocation and investment decisions, I also believe that, at this juncture, the Fed needs to show patience in decisions to remove accommodation. Again, this is particularly true in light of key global secular trends as well as recent developments relating to slowing global economic growth and tightening financial conditions.”
If it was up to Mr. Kaplan it would be “lower for longer,” which is in fact in complete accordance with what markets expect.
Markets expect, at least so far, only 1 rate hike in December this year.
Besides all that and away from the data we have the Noise coming out of Asia where markets seem to have decided it is “risk-on” again and Green dominates the landscape.
The Big Q: Why have they decided this?
The big A: Because they were fed-up with “risk-off”…
For the moment markets seem wanting to go on with further gains in equities and currencies while the rational market hypothesis is lying in shattered fragments once again.
Long-term participants should try never to forget these kind of market moves can only be considered as good market moves once they are representing a return to a more fundamentally determined assessment of where the world is going.
A rising market is only good if it brings the market closer to a fair economically driven fundamental value.
Financial markets are bad in understanding politics, and politics are pretty bad in making themselves understood, and so it goes…
Have a terrific week.
Paul Ebeling
HeffX-LTN
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